How to Build Business Credit With Poor Personal Credit

Form an LLC

In order to begin the process of learning how to build busniness credit the credit bureaus need to know you exist. There are a few steps you need to take to get on their radar.

One of the first things that must be done is forming a legal entity like an LLC or a corporation. This is an important step because once you establish an entity separate from your self you qualify for the Identification the business credit bureaus use to track your business. Once you register your business in the state in which you do business the next step is applying for an EIN with the IRS.

Your EIN will be to your business what your SSN is to you. and will allow you to build business credit by applying for lines of business credit. Forming a legal entity and following the steps laid out in this article could ne the difference between you being able to use OPP ( others peoples paper) to bankroll your business or having to rely on your own savings and bootstrap.

Get a Business Bank Account

Once you form your LLC and receive your EIN number the next step is to open a bank account. The safe way to go is to open an account for receivable; meaning an account that is responsible for house all of your incoming sales. You will want to open a second account for accounts payable. This account will be where all of you expenses are withdrawn from this keeps everything clean and easy to manage when doing business accounting. at some point you may even opt to open a third account for a business savings.

A bank account is crucial in the early stage of your business on account of the fact that if you have poor personal credit. When you are looking to build business credit with poor personal credit some lenders that do not require a personal guarantee will want to verify some way that you are able to pay back a loan. They do this by looking at your finances and using you sales as a guide to determine how much to give you. Separating accounts payable and receivable gives you the ability to leverage all profit with out the loss.

Apply for a Duns number at Dun & Bradstreet

Your next step will be registering your business with Dun & Bradstreet and applying for a Duns number. This nine digit number is used to identify each location of your business. Any business registered with the government can get one for free.

Dun & Bradstreet offers multiple products all aimed at you being able to monitor and build business credit. If you opt to sign up for the credit account they give you access to your Paydex score. Knowing this score will help you better determine what loans you may qualify for.

Apply for business trade lines that don’t require a personal guarantee

When you create an LLC you are under the impression that you are fully protected from any and all liability. This means when completing credit and loan documents you wouldn’t have the nuance of being judged by your own sorted financial past. Unfortunately when you are starting a new business credit a lot of companies will still require some good will in the form of a personal guarantee.

This is a big nuance for someone who has poor personal credit. however, there are so many ways to build business credit with lines of credit that do not impact your personal credit. One way to do this is by signing up for net 30 account. Companies like Uline Grainger, and Quill offer company accounts in which you can make a purchase and have 30 days to pay off the balance. These trade lines often report to the credit bureaus weekly.

Apply for a business credit card that does not require a personal guarantee

Arguably one of the fastest ways you can figure out how to build business credit with your new business is by using a business gas cards. Due to the frequency of use. If done right you can see some good results in the first 90 days. The Caveat is If you have poor personal credit you may have to put some of your working capital down to secure it.

Another great business credit card to apply for that does require any personal guarantee is Divvy. Divvy offers several products for business beginners as well as products for businesses who are already receiving sales and businesses who haven’t quite made any money yet. They have products for any business.

There are also more products for more established businesses that offer lines of credit with no personal guarantee like Brex, Ramp, and Nav. For the most part these companies require you o have strong sales in order to get approved for a line of credit.

Nav is probably the most establishes a robust company out of the three offering not only products to help you finance your business but they also offer a business dashboard that serves as a hub for all of your business accounts. They have the ability to integrate with Dun & Bradstreet, Banks, and other net 30 accounts that allow you to monitor all of your accounts in one place.

After you choose the products that work for your business and create a plan for when and how you will approach financing. Sit back and watch the magic unfold.